Krugman’s blog, 6/22/13

There were two posts yesterday. The first was “Greg Mankiw and the Gatsby Curve:”

A number of people have already piled on to Greg Mankiw over his defense of the one percent (pdf). Yet I do have something to add.

Before I get there, a quick summary of the argument to date. Mankiw argues that the 1 percent make so much because of their high contribution to output — basically, that they have high marginal productivity. So they earn what they get; and Mankiw further argues that economic opportunity is in fact relatively if not perfectly equal. All’s fair!

The critique falls along three lines. First, as Dean Baker notes, even if you believe that the glittering prizes at the top of the economic scale were fairly won, the size of those prizes is very much defined by policy choices. We live in a society that allocates rights to intellectual property in a way that yields huge rewards to a select few, that taxes top incomes at a historically low rate, and so on. Even if the game is fair, nothing says that the game has to look the way it does.

Second, as Harold Pollack says, Mankiw is way too blithe in dismissing inequality of opportunity. As Pollack says, what we actually see is a very strong tendency for children of the top quintile to stay there; and a look at how that happens suggests that there’s a lot more to that persistence than the inheritance of good genes, which seems to be Mankiw’s main explanation.

Third, as The Economist (!) points out, Mankiw’s attempt at a reductio ad absurdum of Ralwsian logic — hey, if we want to equalize results, why not enforce mandatory organ donation! — is just silly. Rawlsian ideas are always a matter of equalization under constraints, where these constraints involve notions of fundamental rights — that’s why Rawls didn’t say “let’s impose perfect equality, and deal with the incentive issue by using forced labor”. As The Economist says, we don’t consider vandalism against property and assault against people equivalent; the same difference makes nonsense of the income taxes = organ donation thing.

So, what can I add? Well, Pollack quotes Mankiw’s casual defense of equality of opportunity:

My view here is shaped by personal experience. I was raised in a middle-class family; neither of my parents were college graduates. My own children are being raised by parents with both more money and more education. Yet I do not see my children as having significantly better opportunities than I had at their age.

What’s wrong with this passage? It’s not just that as a winner, someone who did extremely well, Mankiw has a sunnier perspective than he might if he had done worse. It’s also the temporal slip: Mankiw doesn’t think his children have “significantly better opportunities than I had at their age.” [My emphasis]

Ahem. Greg Mankiw was born in 1958; he reached college age in the mid-1970s, that is, before the great surge in inequality. I’m 5 years older, and also grew up in that America — and it was a different country, one in which ordinary public high schools were often pretty good, in which good higher education was available cheaply at state universities, in which almost none of the vast apparatus of tutors and private instruction now used by the elite existed. It was, in short, a country at a very different place on Alan Krueger’s Great Gatsby curve. So even if it were true that Mankiw’s children now don’t have significantly better opportunities than he had then — which I doubt — this has little relevance to the disparity in opportunities between the elite and the middle class in today’s America.

And yes, you do wonder how someone can teach at Harvard and not see just how many of the students come from privileged backgrounds. This doesn’t make them bad people; it does suggest that we’re much more of a hereditary oligarchy than conservatives have room for in their philosophy.

The second post of the day was “Debased Economics:”

John Boehner’s remarks on recent financial events have attracted a lot of unfavorable comment, and they should. Actually, I think even the stuff most commentators have shied away from — he talks about the Fed “deflating” when I think he means either inflating or debasing, or possibly is doing a Sarah Palin and merging the two — is significant. I mean, he’s the Speaker of the House at a time when economic issues are paramount; shouldn’t he have basic familiarity with simple economic terms?

But the main thing is that he’s clinging to a story about monetary policy that has been refuted by experience about as thoroughly as any economic doctrine of the past century. Ever since the Fed began trying to respond to the financial crisis, we’ve had dire warnings about looming inflationary disaster. When the GOP took the House, it promptly called Bernanke in to lecture him about debasing the dollar. Yet inflation has stayed low, and the dollar has remained strong — just as Keynesians said would happen.

Yet there hasn’t been a hint of rethinking from leading Republicans; as far as anyone can tell, they still get their monetary ideas from Atlas Shrugged.

Oh, and this is another reminder to the “market monetarists”, who think that they can be good conservatives while advocating aggressive monetary expansion to fight a depressed economy: sorry, but you have no political home. In fact, not only aren’t you making any headway with the politicians, even mainstream conservative economists like Taylor and Feldstein are finding ways to advocate tighter money despite low inflation and high unemployment. And if reality hasn’t dented this dingbat orthodoxy yet, it never will.

But my gawd, Paul, don’t you know that there’s a N[CLANG] in the White House?